Last Friday night the Standard & Poor’s credit rating service lowered the U.S. government’s credit rating from AAA to AA+. This means there are about 18 other countries with a higher credit rating than the U.S., including France, Switzerland, Austria and the United Kingdom.

For decades the U.S. has not only been AAA-rated, it’s been considered the highest-rated of the AAA countries. Now, from a credit rating perspective, we lag behind countries like the UK and France, which have their own set of financial problems.

Here’s what all this means from a practical point of view. The U.S. has been like a household with a perfect 850 credit score. Now, because our “debt to available credit” limit is so high, our credit score has been cut. This means it may be a little tougher to borrow money, and those loans may come at higher interest rates.

What does this mean for you, the consumer?

Theoretically, it should mean higher interest rates for everything you need to finance. Because if a near-perfect borrower like the federal government, which has its own money printing press and the ability to boost revenue by raising taxes, will be charged higher interest rates, every other borrower in the world is going to see its rates jump too — from corporations to city governments to credit card users. But that’s not a certain outcome. Japan’s credit rating was lowered from AAA in 1998, and its interest rates are lower today than before the downgrade.

What about the stock market?

There are two recent examples I can point to — Japan and Canada. When Japan lost its perfect credit rating, its market was up 15 percent a year later. Canada was downgraded in1993, and its stock market was up 25 percent a year later.

What about our government?

S&P made it clear that the bickering and last-minute deal-making between the political parties in Washington was one reason for the downgrade. The other reason: spending cuts were not deep enough and revenue increases (i.e. tax hikes) were not included in the deal.

This means that the conversation about balancing the federal budget is just beginning. Both Democrats and Republicans must give up more ground in this debate. That means deeper spending reductions and changes in the tax code in the coming years. After being stripped of its AAA rating in 1993, Canada was fully restored to AAA by 2002 thanks to steep budget cuts and increases in tax revenue. The country is now considered to have the best credit in the world.

The S&P downgrade is troubling news, and financial markets today will undoubtedly be extremely volatile. It also doesn’t help that last week the Dow lost nearly 700 points. But after the initial shock, the market will at some point return to focusing on the fundamentals of what companies earn. And, based on the August earnings reports, those are hovering near an all-time high.

If you spend any time on the Internet, you’ve probably seen ads for “free” credit scores. They usually appear alongside ads promising to make your belly fat disappear.

There are two problems with these promotions. First, you usually have to sign up for credit monitoring, identity theft protection or some other service to get your credit score. These products cost anywhere from $15 to $18 a month.

But even more troubling, these scores could give you a distorted view of your credit standing, according to a report from the Consumer Financial Protection Bureau. That’s because these credit scores usually aren’t the same scores lenders use when they consider your application for a loan, the CFPB said. Credit scores marketed to consumers who order their credit reports from AnnualCreditReport.com could also mislead consumers, the report said.

While consumers are often reminded of the importance of a good credit score, there are lots of different credit scores circulating in the marketplace. Some credit scores sold to consumers by the big three credit bureaus — TransUnion, Equifax and Experian — are “educational” scores that aren’t used by lenders, the CFPB says. The score you buy may be based on different information than the one used to consider your application for a car loan or home mortgage. Another possibility: The information used to calculate your score could change between the time you buy a score and the time you apply for a loan.

The discrepancy isn’t a problem for consumers with stellar credit, says John Ulzheimer, president of consumer education for SmartCredit.com. “If you’ve got fantastic credit, you’re going to have a fantastic score regardless of what score is being used,” he says. Similarly, if your score is abysmal, there’s not going to be much difference between the score you buy and the one lenders see.

Most consumers, though, fall between those two extremes, Ulzheimer says. Here’s how differences between the score you have and the one your lenders use could cost you money:

•If the score leads you to believe your credit is worse than it is, you could end up settling for higher interest rates than you’re eligible for, or decide not to apply for credit at all.

•If the score causes you to feel overconfident about your credit, you could waste time and money applying for loans that won’t be approved. You could even end up in worse shape, because when you apply for a loan, inquiries from creditors show up on your credit report. Multiple inquiries could dent your score.

Knowing the score

Fortunately, starting this month, millions of consumers will get a look at the credit scores lenders use. A provision of the financial reform bill that took effect Thursday requires lenders to provide you with a free copy of your credit score whenever they turn you down for a loan or approve a loan with a higher interest rate than the one offered to their best customers.

Lenders must give you the score used to make a determination on your loan, not a generic or educational version. They’re also required to explain the factors that affected your score and show where it falls on the range of possible credit scores.

This is useful information, but it won’t help consumers who want to know where they stand before they apply for a loan. How to get a more accurate idea of what your lenders will see:

•Order your free credit reports. While scores differ, they’re all based on information from your credit reports. So at the very least you should check your credit reports to make sure the information in them is accurate.

You can get an annual copy of each of your credit reports from the three credit bureaus at AnnualCreditReport.com.

Information on your credit report can affect everything from your car insurance premiums to whether you get a job. Only 38% of consumers have obtained a copy of their credit report, according to the National Bureau of Economic Research.

•If you decide to buy a score, buy a FICO score. There are lots of credit scores out there, but the FICO score is the one the vast majority of lenders use. You can purchase a FICO score based on your TransUnion and Equifax credit reports for $19.95 each at MyFICO.com.

FICO scores based on Experian credit reports are not available to consumers.

•Use free scores to give you a general idea of where you stand. Websites Credit Karma, Quizzle, Credit Sesame and Credit.com provide free, no-obligation credit profiles.

This isn’t the same as a FICO score, but you’ll get a general idea of whether you’re an excellent, average or poor credit risk.

The government’s new credit score disclosure rules mean more consumers will get a free peek at their credit scores starting July 21, 2011.

Under final rules issued by the Federal Trade Commission and Federal Reserve Board to reflect the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, creditors must disclose the credit score used and additional information related to the score if the consumer receives less-than-favorable loan terms as an applicant or existing customer. Consumers who are denied credit because of their score also receive the score and the additional information.

In most cases, terms refer to the annual percentage rate, or APR, says Rebecca Kuehn, assistant director in the Federal Trade Commission’s division of privacy and identity protection. If there is no APR, the next most significant term affected by the credit score applies, she says.

So what can consumers expect to see in the credit score disclosure? Besides the score, it will include the range of possible credit scores under the model, four key factors that hurt the score — the number of inquiries can be added as a fifth factor — the date the score was created and the reporting agency that provided it.

“In a world where credit requirements are tightening and more people are likely to be denied, the credit score disclosure will have a bigger impact for consumers,” Kuehn says.

Expansion of existing rules

Since Jan. 1, 2011, creditors have been required to provide a more general risk-based pricing notice to consumers who were extended credit on worse terms than other consumers, or a credit score disclosure notice to every applicant. Creditors supplied an adverse action notice if consumers were denied credit or experienced unfavorable changes to an existing account. Neither the risk-based pricing nor adverse action notice included a credit score. Only the credit score disclosure contained the actual score.

“The credit score is what people are most interested in,” says Nessa Feddis, vice president and senior counsel for regulatory compliance at the American Bankers Association.

Feddis points out that many lenders already send out credit scores and disclosures to every consumer to comply with the old risk-based pricing rules. It was easier (and cheaper) than parsing out who should receive a notice.

The scores could cause confusion among consumers since there are many scoring models available, and the credit reporting agencies often don’t have access to the models, says Maxine Sweet, vice president of public education at Experian. She recommends that consumers focus on where they fall in the range of risk rather than on the number.

“We worry consumers will be confused and frustrated by that because they will have expectations that we will know specifically about their score,” Sweet says.

Still, it’s a starting point.

“It will prompt consumers to get a copy of their credit report, address any errors or learn how their own financial behaviors affect their ability to get credit and the price they pay for it,” Kuehn says.

Last month, Hattie McKinney sued a collection agency that she said had been calling her Powder Springs home for nearly a year over a $300-plus cellphone bill that she disputes.

“They kept calling me and calling me, about 20 times a day,” said McKinney. “It kept me a nervous wreck.”

Finally, the 69-year-old woman sued the Minnesota-based agency, alleging violations of a federal law that bars collection companies from using harassing calls and other bare-knuckled dunning practices.

If she wins in the federal district court in Atlanta, she could collect at least $1,000 in damages, plus legal costs.

Meanwhile, the calls have stopped. That was “the best thing,” said McKinney.

Thirty-three years after the Fair Debt Collection Practices Act was penned, skirmishes between debtors and collectors are being played out more than ever across the nation.

Consumer complaints about debt collectors rose 17 percent last year to 140,036, according to the Federal Trade Commission, the agency with primary responsibility for enforcing the law. The number of grievances have tripled since 2002, and are the most common gripe the agency hears, accounting for 27 percent of all complaints.

While the federal Fair Debt Collection law isn’t intended to block firms from collecting legitimate debts, it does aim to stop abusive practices, such as using harassment, lies or intimidation to bully people into paying.

This summer, debt collectors could come under even more scrutiny as a new agency joins the Federal Trade Commission in investigating complaints of violations.

Starting July 21, the Consumer Financial Protection Bureau will be looking into complaints about errant bill collectors. The federal watchdog agency was created by a law enacted last year.

“The agency will have all kinds of power to set rules,” said Emory Clark, managing partner at bankruptcy law firm Clark & Washington in Atlanta. The FTC can investigate complaints, but can’t write rules to address new technology, such as cellphones, e-mail and voice mail. Those conveniences allow collectors to communicate more easily with debtors and create more potential for abuses and violations.

The new bureau will have authority not only to write new rules on how debt collectors deal with consumers, but to hear and resolve complaints, said Valerie Hayes, general counsel for ACA International, a trade group representing about 5,000 debt collectors, attorneys and investors in the debt collection business.

“The collection industry is going to have two regulators,” she said.

Struggle on both sides

The new agency will be stepping in at a time when both debt collectors and their quarry have been facing some tough years recently.

Collection calls and complaints have soared for a variety of reasons, but that hasn’t necessarily translated into bigger collections, say consumer lawyers, the FTC and players in the collection industry.

Credit card companies, hospitals, cellphone companies and other creditors have increasingly sold their delinquent debts to outside firms rather than using their in-house staffs to collect old debts.

With that, debt-collection activity rose as more companies got into the collection business. Computer software made it easier for even small firms to pursue payment of old, charged-off bills that they often bought for pennies on the dollar.

At face value, collectors bought $110 billion worth of debt in 2005 — 90 percent from credit card companies, according to ACA International. In 2007, they recovered $6 billion on such debt.

But in the wake of the recession and financial crisis of three years ago, both debt collectors and consumers have struggled, and the debt market has stagnated.

The biggest factor driving growing complaints, say some, is increased desperation of both debtors and collectors.

“A lot more people are having to confront collectors,” said Kris Skaar, with Decatur law firm Skaar & Feagle. “Plus, people are much more aware of their rights because of the media and the Internet.”

Firms are chasing people who often have lost their jobs and have little money to repay old debts, said Clark. For now, he added, “the collection business is not all that good.”

The pressure on firms may, in turn, be driving some collectors and their employees to cross the line when calling debtors, he said.

Meanwhile, the stakes of the battle between debtors and collectors are rising.

In March, a Marietta collections firm reached a $2.8 million settlement with the Federal Trade Commission, one of the commission’s largest enforcement actions ever against a debt collection agency. The firm, West Asset Management, didn’t admit wrongdoing as part of the settlement, but agreed to extra monitoring and other measures for five years. A West Asset spokesman declined additional comment.

FTC said in court filings that the firm’s debt collection practices “generated thousands of complaints” with the FTC, Better Business Bureau, state regulators and the company.

The agency said the company, which employs about 1,500 debt collectors in 13 states and overseas, made repeated, harassing phone calls, often using obscene language; falsely claimed to be a law firm; and falsely threatened debtors with lawsuits, property seizure and arrest.

The company sometimes tapped debtors’ bank accounts and credit cards without their permission and ignored its own internal program that identified employees who were violating the law, the FTC said.

West Asset Management, which provides debt collection services for hospitals, telephone companies, consumer credit firms, government agencies and other clients, must send written notices to debtors, spelling out their rights under the federal law. It also will require its employees to sign notices acknowledging their duties and potential liabilities under the law.

The firm’s parent company, Omaha-based West Corp., reported a $34.6 million profit in the first quarter but also said its net worth is negative $2.5 billion.

In a filing earlier this month to the Securities and Exchange Commission about a planned initial public stock offering, West Corp. disclosed the FTC’s enforcement action, but not the $2.8 million civil penalty.

Blogger Todd Ossenfort has been known as “The Credit Guy” for the past three years. Now he’s hanging up his mouse and keyboard and leaving his readers with his top 5 tips for good credit. We’d like to share them with you here!

1. Saving is essential to avoid unwanted and often problem debt. If you don’t have an emergency savings account of six to 12 months of income saved, start today. Save whatever amount you can regularly (each pay period) even if it is only $25. As you get in the habit of saving, increase the amount as you can afford to do so. Save something every month, even if you are struggling to pay down debt.

2. Never co-sign, especially for a family member. Generally speaking, if a lender is not willing to loan money to someone, you shouldn’t either. Co-signing for a loan or credit card for another person is a great way to ruin a valuable relationship — and your own credit. If the person can’t or won’t make payments, your credit will suffer and you will be held responsible for paying.

3. Check your credit report annually. Place a reminder on your calendar and get your free credit report each year. Reviewing your credit report at least annually will help detect identity theft early. It’ll also help insure there aren’t any inaccurate entries on your report. When you work with CredZoo, this is done for you. One less item to worry about! CredZoo has a free credit report analysis. We can look at your reports and see if we can help you before you sign up.

4. Avoid using credit to extend your income. Living within your means is key to avoiding large credit card debt. If you are using credit each month to pay for essentials, you need to take a hard look at your monthly spending and make cuts to bring your spending in line with your income. Simple budgeting 101.

5. Know your rights when dealing with collectors and use bankruptcy protection when it is needed — and only if it is needed. Learn your rights under the Fair Debt Collection Practices Act and keep collectors from intimidating you into promises you can’t afford to keep.

One of the rights you are given under the Fair Credit Reporting Act (FCRA) is to challenge inaccurate, misleading and obsolete items appearing on your credit report. CredZoo uses every venue available under the law to help you assert these rights. Disputing items on your credit report is your legal right. When you use CredZoo to help repair your credit, we are abiding by and using all federal and regional laws regulating third party credit repair assistance.

Contacts us today for more information on any of these 5 tips or to learn more about CredZoo’s services and the FCRA: 1-888-881-5333

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